Microsoft Surface Tablet Could Hurt iPad, iPhone Even Apple TV Sales

The Microsoft Surface tablet has the potential to cut into sales of Apple iPads, iPhones and even Apple’s rumored TV—if the tablet is all that Microsoft says it is. Unfortunately, no one will know if that’s the case for some time.

Microsoft gave its longtime hardware partners a poke in the eye when it introduced two Surface tablets at an invitation-only event in Los Angeles June 18. While a risky move, it was a necessary one, say analysts. Microsoft needs a device that can effectively compete against the Apple iPad€”and so critically so that it can€™t trust its OEM partners to deliver on one.

€œThe iPad terrifies Microsoft,€ Avi Greengart, an analyst with Current Analysis wrote in a June 19 report.

Greengart€™s report explains that while €œcompeting with your licensees never works,€ as a product could fail and then the licensor has wasted money and aggravated its partners to no benefit, Microsoft learned a strong lesson from the iPod. As early as 2005, Microsoft recognized the importance of the iPod and iTunes to Apple and went about its normal licensing to partners, but the resulting PlaysForSure was a disaster. Microsoft scrambled and responded with Zune, but too late.

€œMicrosoft clearly does not trust its partners to compete effectively with Apple, and Microsoft feels that the stakes are too high for it to wait for Apple to cement the iPad as a laptop alternative€”or give Google time to fix the problems with Android for tablets,€ Greengart writes.

Charles King, principal analyst with Pund-IT, said in a June 20 report that while Microsoft €œhas a bit of a €˜bull in a china shop€™ reputation,€ it€™s aware enough to realize how entering the hardware market could impact its partners.

Microsoft exercised an impressive amount of discretion leading up to the Surface event. Still, King wrote, €œThe melodramatic notion that OEMs would somehow be deeply surprised by Surface is, frankly, a bit shallow.€

However, Roger Kay, an analyst with Endpoint Technologies, says while they knew, they may not have known much or very far in advance. Many of the OEMs are his clients, and he prodded them after the announcement to gauge just how much they knew. Kay told eWEEK, while no one wanted to discuss it much, none had received very much notice. €œSomeone said, €˜Oh, [Microsoft CEO Steve] Ballmer called me just before his speech.€™€

During its presentation, Microsoft was effusive with some details€”the Surface€™s case is magnesium and formed from a €œphysical vapor deposition process€€”and stingy on others. Kay called it, for now, a €œstraw product,€ a placeholder. But if it€™s as good as it looks, it could have major implications beyond cutting into iPad market share.

Greengart points out that a hit Surface tablet could drive sales of Windows Phone 8 smartphones and help lock consumers €œinto Microsoft€™s cloud services that span both devices, by familiarizing consumers with the Metro interface and by encouraging app developers to target the platform (which has many similarities to Windows 8).€

Pund-IT€™s King notes that integration with the Xbox is also a €œno brainer.€ Using the Surface for Windows RT€”the consumer version of two introduced Surface tablets€”as an interface for Xbox makes perfect sense for several use cases, including Kinect.

€œRemember that Microsoft€™s Xbox installed base is estimated to be around 70 million, or roughly the same as Apple€™s iPad installed base,€ wrote King. €œIf Microsoft can convert a sizable number of media-savvy Xbox owners into Surface customers, it could cut deeply into the potential audience for [the rumored] Apple TV.€

Kay says the Surface seems impressive. Halfway through live blogging, he jokes, one could hear the invited analysts and journalists €œcracking open€ and oozing enthusiasm. Still, he€™s skeptical.

€œThey have to prove to me they know how to do things the not-boneheaded way,€ said Kay, explaining that one only gets to know a Microsoft device after living with it. €œEven at this late date Microsoft doesn€™t understand that you can€™t interrupt the user experience to do some housekeeping€”you€™ll be trying to get down the fantastic opening line of your great American novel before you forget it, and Microsoft will interrupt to say you should perform a virus scan.€

Still, €œif it€™s as good as they say it is, that will change the game,€ said Kay. €œIt could also drive many of the OEMs out of the game, if Microsoft takes the crème de la crème off the top and leaves everything else for the OEMs, who are already making lousy margins.€

Kay also points out that Microsoft will have to figure out its distribution€”another area where it€™s prone to goof up and where Apple has become a finely oiled machine. After Tim Cook joined the company, he says, €œeverything got a lot tighter. They haven€™t made a major execution mistake in at least a decade.€

Microsoft hasn€™t yet shared a release date for the Windows RT Surface, though October is widely speculated; the Windows 8 Pro version will ship three months after the mystery release date of the RT version.

Greengart notes that despite all the vagaries, €œSurface is the most competitive general-purpose tablet we€™ve seen from anyone other than Apple. Sadly,€ he adds, €œthat is not a very high bar to cross."

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